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Forex Weekly Outlook March 4-8- ECB and NFP dominate the scene

The US Dollar was on the back foot following Powell’s patience and also the potential Brexit delay. What’s next? A busy week features the ECB meeting and the US Non-Farm Payrolls report. Here the highlights for the next week.

Trade talks between the US and China will extend after the initial March 1st deadline and the news boosted sentiment. Presidents Trump and Xi may meet in late March to sign an agreement. Fed Chair Jerome Powell repeated the dovish message of patience on interest rate hikes, weighing on the greenback. In the UK, PM May opened the door to extending Brexit, even though a solution does not look near. The pound soared, also enjoying Labour’s shift regarding a second referendum. Worries emerged from the escalation between India and Pakistan.

Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia left its interest rate unchanged at 1.50% in the past two and a half year or so. In the previous decision in February, the Bank also left the statement unchanged. However, consequent appearances by Governor Phillip Lowe and the Statement of Monetary Policy showed a shift from a slightly hawkish bias to a neutral one due to worsening global conditions. Will this be reflected in the fresh statement? Every word will be scrutinized.

UK Services PMI: Tuesday, 9:30. Markit’s series of purchasing managers’ indices culminates in the report for the services sector, the largest in the UK. It dropped to only 50.1 points in January, touching the 50-point threshold that separates expansion from contraction. Will it fall lower? A contraction in the sector could reflect growing fears of Brexit.

US ISM Non-Manufacturing PMI: Tuesday, 15:00. The services sector report disappointed in January with a slide to 56.7 points, partly reflecting the government shutdown. It may return to higher levels now. Apart from being a forward-looking gauge for the largest sectors, the figure serves as a hint towards Friday’s Non-Farm Payrolls report.

US New Home Sales: Tuesday, 15:00. The housing sector is struggling, as seen in the recent existing home sales report and in housing starts. Back in November, new home sales provided relief with a leap to 657K annualized. We will finally receive the data for December, which may be weaker.

Australian GDP: Wednesday, 00:30. The Australian economy slowed down quite considerably slowed down in Q3, 0.3%, a third of the of the pace in Q2. The outcome for Q4 will unlikely improve as the whole world slowed down, including China, Australia’s No. 1 trading partner.

US ADP Non-Farm Payrolls: Wednesday, 13:15. Automated Data Processing is the biggest provider of payrolls in the US and in recent months, its report has been well-correlated with the official NFP published later on. In January, 213K positioned were gained according to ADP. A more moderate expansion is likely now.

Canadian rate decision: Wednesday, 15:00. The Bank of Canada increased interest rates to 1.75% back in October but has not moved since then. No change is expected now. Governor Stephen Poloz and Deputy Governor Carolyn Wilkins said that the economy can grow with little inflation, signaling a pause. While the trade dispute with the US has been resolved, the global slowdown still casts clouds on the economy.

ECB decision: Thursday, the decision at 12:45, press conference at 13:30. The European Central Bank acknowledged the slowdown by saying that “risks are moving to the downside.” However, President Mario Draghi and his colleagues continued signaling that they intend to raise rates this year, by pledging low rates “through the summer.” Will they push back their forecasts now? It is important to note that Draghi ends his tenure in November, so changing the guidance may tie the hands of his successor. The ECB staff releases new forecasts for inflation and growth and these may be downgraded. Any hint about a change in the interest rate prospects and perhaps a new TLTRO program will be of interest. Draghi’s characterization of the economy is also in the limelight. Some kind of dovishness is priced in, but an immediate change to the statement is not on the cards.

US Non-Farm Payrolls: Friday, 13:30. US jobs reports have been blockbusters of late. The increase of 304K positions in January beat expectations and also the 3.2% y/y growth rate both reflect a robust jobs market, while other economic indicators are somewhat more mixed. Did the labor market continue marching forward in February? Perhaps at a slower pace. Apart from the headline NFP and wages, the unemployment rate at 4% and the participation rate, at 63.2%, are both of interest.

Canada’s jobs report Friday, 13:30. Similar to the US, also Canada also enjoyed upbeat labor reports of late. An increase of 66.8K positions was seen in January. The Unemployment Rate stood at 5.8%. The composition of full-time and part-time jobs is critical. In addition, wages will be watched. They seem to have bottomed out after a long deceleration.